US Strategy Weekly: No News has been Good News

It is interesting, and perhaps important, to watch how the stock market deals with the absence of government surveys, and in particular, information regarding both employment and inflation. These releases, plus FOMC meetings, have been the main sources of either angst or exuberance for investors over the last year. And since third quarter earnings season has not yet started in earnest, investors are relatively void of action points. However, to date, investors have not been worried about the shutdown, or a lack of data, and for reasons we explained last week. (Calm not Chaos, October 1, 2025)

Meanwhile, outside US borders, there have been changes. Sanae Takaichi, a hardline conservative and proponent of low interest rates and fiscal spending, was recently elected leader of the ruling party in Japan. Takaichi, an admirer of Margaret Thatcher, has called for a stronger military, promotion of nuclear fusion, cybersecurity and tougher policies on immigration. The election prompted a selloff in the yen and domestic bonds and sent Japanese stocks to record peaks.

Conversely, France’s President Emmanuel Macron is facing immense pressure to resign or hold a snap parliamentary election to put a stop to the never-ending political turmoil that has forced the resignation of five prime ministers in less than two years. French Prime Minister Lecornu recently held last-ditch talks to form a new government, but this failed, and he resigned. France, the second largest economy in the eurozone, is crippled by a combination of unsustainable debt and unions and factions that rebel at the thought of budget cuts. In our opinion, this scenario is important and has the earmarks of the Greek sovereign debt crisis. The Greek crisis became evident to all in 2009 and led to a joint European Union, International Monetary Fund, and European Central Bank bailout in 2010. The collapse of Greek sovereign debt threatened the stability of the European Union and many banks around the world, and the aftermath left Greece impoverished for over a decade due to externally imposed austerity measures from its creditors. We should keep an eye on France.

Meanwhile, in the absence of the Bureau of Labor’s release of September job data, there are a few different data points we can monitor. ADP releases monthly data on the private sector job market and this report indicates the private sector lost 32,000 jobs in September. The greatest job losses were in the service sector and in establishments with 20 to 49 employees. Conversely, large companies increased the number of employees. Note that ADP’s September report incorporated a preliminary re-benchmarking of the National Employment Report based on the 2024 results from the Quarterly Census of Employment and Wages release. ADP also noted that its August 2025 employment number was revised from 54,000 to negative 3,000 due to this re-benchmarking. (The BLS will do its re-benchmarking with the January employment report released in early February 2026.)

Both ISM manufacturing and nonmanufacturing surveys were reported in recent days and both surveys include employment indices. The ISM employment indices were 45.3 in manufacturing and 47.2 in nonmanufacturing. The total of these two employment indices equaled 92.5, which is up from the 90.3 level seen in August. The importance of the combination of these two employment indices is that whenever the sum has dropped below the standard deviation range, the economy has been in a recession. This index did fall below the standard deviation range in the months of September 2024, March 2025, July 2025, and August 2025. In short, the ISM employment surveys have implied the US economy has been waffling near recession employment levels for the last 12 months. The good news is that there was improvement in September. See page 4.

The ISM surveys also showed that the main manufacturing index increased 0.4 points to 49.1 and the nonmanufacturing index fell 2 points to 50. In terms of business activity, manufacturing rose 3.2 points to 51.0 and nonmanufacturing fell 5.4 points to 49.9. This was an unusual shift from the pattern seen for most of the last two years in which nonmanufacturing, or service, outperformed manufacturing. In the manufacturing survey, six of the 11 components fell in the month and eight were below the 50 breakeven level. In the nonmanufacturing survey, seven of 11 components fell in the month and six were below the 50 breakeven level. New orders declined significantly in both ISM surveys with this index falling to 48.9 in manufacturing and to an above benchmark 50.4 in nonmanufacturing. Conversely, backlog of orders rose considerably, to 46.2 in manufacturing and 47.3 in nonmanufacturing. All in all, both reports reflected sluggishness in business activity. The most worrisome fact was the weakening trend in the nonmanufacturing sector since the service sector is currently the most important segment of the US economy.  

There were two releases on consumer credit this week. The Quarterly Report on Household Debt and Credit, released by the Federal Reserve Bank of NY, indicated that total household debt increased by $185 billion to reach $18.4 trillion in the second quarter. Mortgage balances grew by $131 billion, to $12.94 trillion at the end of June. Auto loan balances also increased by $13 billion to $1.66 trillion. Transition into early delinquency held steady for nearly all debt types; but the exception to this was for student loans. Missed federal student loan payments were not reported to credit bureaus between the second quarter of 2020 to the fourth quarter of 2024 but they are now appearing in credit reports; as a result, delinquency rates are on the rise. In the second quarter of 2025, 10.2% of aggregate student debt was reported as 90+ days delinquent. This was a significant jump from the 7.7% reported in the first quarter. Credit card 90+ days delinquent remain the highest at 12.27% of total loans, but this was down slightly from the 12.31% reported in the first quarter of the year. See page 5.

Separately, Federal Reserve monthly data of total consumer credit showed credit was declining year-over-year from December 2024 to February. This is another sign of a recession. But total consumer credit has been growing modestly since February. The exception is revolving credit, which continues to contract and was down 2.5% YOY in August. This is a sign that consumers may have tapped out credit card lines which is another sign of financial stress.

From a technical perspective, the stock market remains in a bull market. The NYSE cumulative advance/decline line made a new high on October 6, 2025, and the 10-day averages of new highs and lows remain consistently bullish. The only indicator that has failed, to date, to confirm the string of new highs in the popular indices is the 25-day up/down volume oscillator. It has remained neutral since July, and this implies that volume in advancing stocks has been equal to that of declining stocks. In a bull market, volume typically increases in advancing stocks and is a sign of strong and increasing demand. This strong buying results in a long overbought reading. The absence of a strong overbought reading suggests that, lacking strong buying, the August-September rally is vulnerable to a pullback. Nevertheless, we would be a buyer of any weakness since the long-term bull market trend remains intact. As we noted earlier, it is important to see how the equity market performs in the absence of any significant catalyst or new information. In our opinion, the market’s action has been solid, and we believe this is due to the deregulation and fiscal stimulus that will help companies grow and low tax rates to help middle income families. In turn, this will drive corporate earnings and generate positive earnings surprises.

Gail Dudack

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